It is no surprise that President Obama should be keenly aware of income inequality: He has to look no farther than his own neighborhood to find the most extreme case of it, according to a new study by MoneyRates.com.
The study finds that Washington, D.C. has a greater degree of income inequality than any of the 50 states, and that the states that voted for Obama in 2012 suffer more from income inequality than those that voted for Mitt Romney. However, the study’s findings also raise questions about whether a higher level of income inequality is actually a bad thing.
The gap between rich and poor
MoneyRates.com looked at income inequality in all 50 states, plus the District of Columbia, by using the most recent annual wage data from the Bureau of Labor Statistics, as well as data from the previous 10 years in order to measure changes.
Rather than examining outliers — such as the salaries for the very richest or very poorest workers — MoneyRates.com focused its measures on income inequality on a comparison between wages at the top 25th percentile and wages at the bottom 25th percentile. The intent here was to capture a gap that’s affecting a broad range of workers.
The central figure computed was the ratio between top 25th and bottom 25th percentile wages. The change in this ratio over the 10-year period of the study shows where the gap between rich and poor is widening the most, and where it is narrowing (which is rare).
These figures were then used to look at how income inequality looks in states that voted for Obama in 2012 (blue states) and those that voted for Romney (red states). Finally, the degree of income inequality was compared to median wages and wage growth overall, to see whether the average worker is better or worse off in states with a high degree of income inequality.
Where income inequality is greatest
The ratio between the top 25th percentile and bottom 25th percentile incomes is greatest in Washington, D.C., where high incomes are 2.6 times low incomes. To put some actual numbers on that, high-income workers in D.C. earn $102,980 per year, while low-income workers earn $36,690. The gap is narrowest in South Dakota, where high incomes are 1.89 times low incomes. There, high-income workers earn $41,580, compared to $21,580 for low-income workers.